Total distillate demand includes both diesel and heating oil. These are similar products. Physically, diesel can be used in the heating oil market, but low sulfur requirements keep heating oil from being used in the on-road transportation sector.

Looking at demand in some detail, we can see demand last year grew over prior years. U.S. distillate demand during the last winter (1999-00) was more than 4% higher than in the prior year, due mainly to diesel demand growth, since warm weather kept heating oil demand from growing.

Total distillate demand peaks in the winter due to heating oil demand increases. While the average peak is in January, this past winter and two years ago, the peak was in December.

Last December, when stocks dropped below the normal band, demand was almost 12% stronger than the prior year, although U.S. temperatures were only 6% colder. The Northeast, however, was 11% colder, and this region would affect heating oil demand more strongly than U.S. temperatures.

Still, December demand seemed stronger than the weather would have indicated. Some of this strength may have come from Y2K activities. For example, anecdotal evidence indicates some utilities removed themselves from the natural gas system and used distillate during the year turnover to assure uninterrupted electricity supply.